The recently increasing number of complaints about payday loans with more and more people seeking redress claims is worrying. The Financial Ombudsman Service (FOS) saw about 39,715 claims logged last year compared to the previous’ year figure of 17,256 claims.
The number recorded with the FOS is likely lower since lenders receive and settle legitimate claims and only claims reaching the FOS are those claims in which the lender and the customer fail to reach an agreement.
Claims of not lending responsibly
The rising redress claims are always directed against lenders and the complaint is that they are to blame for a customer’s lack to successfully pay the loan. The argument is that these lenders are not able to adequately assess the person’s creditworthiness and end up mis-selling the loans to them even when they cannot afford to pay unless they borrow from somewhere else.
However, the benefits of loans are more than clear: after the new regulations led to the closure of more than half the number of payday lenders, many people are now unable to access payday loans. The new regulations require rigorous credit and affordability checks by the lender before advancing the loan. More people who are unable to borrow payday loans have now resulted in home loans. Others have already turned to illegal loan sharks as an alternative.
Loan sharks are worse than payday loans because they are illegal and will often abuse, intimidate and even show harmful behaviour towards clients. These are some of the negative effects of accessible payday loans that could result in following these redress claims.
On the other hand, doorstep lenders are also worse than payday lenders because they are loosely regulated. More than 1.6 million people in the U.K. use doorstep loan services. Besides, these lenders charge much more interest than do payday lenders – 1557% compared to payday loan average APR of 1100%. The problem of lack of adequate affordability checks persists and is even worse than with payday lenders.
Secondly, in most cases, it is the irresponsibility of customers taking loans they aren’t able to pay or failing to plan adequately even when they have such options as borrowing from family or friends to avoid the costs.
Claims industry capitalising on the problem
Amidst increasing claims for redress, the claims management companies (CMCs) that help customers to seek claims, have been growing stronger. The claims companies or companies helping clients to file redress complaints and get compensation are also part of the problem because they also charge high fees and exhibit questionable business practices. Most of the consumers reach out to these companies for help yet they can make complaints themselves.
The Consumer Finance Association (CFA) noted what it refers to as “worrying tactics” among those companies helping customers to claim compensation for mis-sold loans they were not able to afford.
According to the CFA, the poor tactics displayed by claims companies included poor quality complaints, data protection issues, and complaints that were made without permission. For instance, last year, one claims company sent more than 1,000 complaints to different lenders trying to flood them with complaints.
Elevate, which owns Sunny, has also received more than 2,500 complaints from 2018 CMCs in the last six months. These claims are being made by people who are not customers of the company as claimed. In some cases, the person’s employer and bank details are also included in the claims.
Another CMC sent 21 complaints to the same company, with the claims coming from people who did not even know that the complaints were raised by the CMCs. Further, CMCs have been making claims for cases already settled by lenders.
CMCs also submit claims to the same company, with old permissions dating back six months. A good example is 630 claims made by PayDayRefunds last year. Another company, Charter-house Claims, raised 1,130 claims within three days but some did not related to funded loans.